1 SCENARIO 3:Fractional-Reserve Banking ■ Suppose the borrower deposits the $800 in Secondbank. Initially,Secondbank's balance sheet is: SECONDBANK'S ■But then balance sheet Secondbank will loan 80%of this Assets Liabilities deposit reserves $160 deposits $800 and its balance loans $640 sheet will look like this: CHAPTER 18 Money Supply and Money Demand slide 9CHAPTER 18 Money Supply and Money Demand slide 9 SCENARIO 3: Fractional-Reserve Banking ▪ But then Secondbank will loan 80% of this deposit ▪ and its balance sheet will look like this: SECONDBANK’S balance sheet Assets Liabilities reserves $800 loans $0 deposits $800 ▪ Suppose the borrower deposits the $800 in Secondbank. ▪ Initially, Secondbank’s balance sheet is: reserves $160 loans $640 1